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Diversification Benefits of iShares and Closed-End Country Funds

  • Anita K. Pennathur
  • Natalya Delcoure
  • Dwight Anderson
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    We study the performance and diversification of iShares and their rival closed-end country funds from April 1996 to December 1999. International iShares are country-specific series of securities that track the price and yield of a specific Morgan Stanley Capital Internation (MSCI) country index and, presumably, should provide diversification benefits. Our single-index model demonstrates that iShares replicate the home index, showing some potential for diversification. However, our two-factor model, which isolates the "true" diversification virtues, documents that both iShares and closed-end country fund market prices maintain considerable exposure to the U.S. market. Furthermore, the net asset value returns of the closed-end funds demonstrate a strong home country exposure, suggesting there is no substitute for direct foreign investment. 2002 The Southern Finance Association and the Southwestern Finance Association.

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    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 25 (2002)
    Issue (Month): 4 ()
    Pages: 541-557

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    Handle: RePEc:bla:jfnres:v:25:y:2002:i:4:p:541-557
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